Watch Your Receivables Like A Hawk

Former IBM and Chrysler Corp. finance chief Jerry York spoke at the recent CFO Rising conference in Orlando. Per CFO Magazine, one message he delivered that is applicable to companies of all sizes related to accounts receivable.

York warned credit collection departments to stay on top of credit terms and receivables, "because in a contracting economy, receivables become a concern." He cautioned: "Watch your receivables like a hawk."

With a recession highly likely and a credit crunch gaining strength, it's more important than ever to maximize cash flow and minimize working capital because money tied up in working capital is money not available to grow the company.

For small businesses without access to bank financing, factoring can be an effective solution for accelerating cash flow when both your accounts receivable and DSOs are increasing. The cost of factoring can be offset by the discounts you can take with your own suppliers by paying their invoices sooner.

Are your accounts receivable and DSOs increasing? Do you need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : accounts receivable , Jerry York , CFO Magazine , DSO , working capital , factoring

Top 5 Independent Leasing Companies

One of the major magazines for the leasing industry just published its first list of top private independent leasing companies. The list is based upon the dollar value of new leasing business closed in 2007.

Here are the top five:

1. CSI Leasing
2. US Express Leasing
3. Great America Leasing
4. ICON Capital
5. Relational Technology Solutions

Like any list, a prospective borrower needs to know the specific target markets of the lender. Does the lender have specific industries, asset types, credit profiles or deal sizes that it is willing to pursue?

For example, CSI Leasing specializes in technology equipment. ICON Capital looks for deals in the $10 million to $150 million size. US Express focuses on five main origination platforms - you wouldn't contact them to finance construction equipment.

Need help finding the right leasing source or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Equipment leasing , leasing , equipment finance , ELFA

CFO Magazine on Credit Insurance

If you liked my posting, Insurance that Makes You Money, you'll like the article on managing the credit risk of your customers in the March edition of CFO Magazine, No Uncertain Terms.

In a nutshell, the article visits the issue of the trade-off between offering open credit terms to customers in an increasingly credit challenged environment versus leaving sales on the table.

As one CFO said, you can "have perfect DSOs and no write-offs, but that may mean you missed plenty of sales".

As I've said in the past, if a business is extending credit terms, you're really a lender. Not necessarily a good place to be if you don't know what you're doing. Good credit and collection policies are an absolute necessity as it becomes more likely that a recession and credit crunch will be having an impact on your customer's ability to pay your invoices when due.

The article makes a couple of other good points that I've made here as well. First, don't become too dependent on a limited number of clients. Second, a weak dollar may lead a number of companies to target overseas markets requiring a whole different degree of credit management oversight.

Credit insurance and standby letters of credit are a few of the tools mentioned in the article as ways to mitigate the risk of offering open credit terms. But don't become over-reliant on any of these - even the credit insurance providers will drop coverage if they start taking losses due to your sloppy credit and collections policies.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : credit insurance , CFO magazine , open credit terms , credit and collections

Franchise Finance - Lenders Tighten Up

The credit crunch for small business loans may be causing lenders offering both conventional loans and Small Business Administration (SBA) loans to think twice about providing money for franchise start-ups and expansions.

Not buying a franchise with a brand name, a track record of success in good times and bad or a solid core of long term operators? It will be tougher to get a franchise loan. Like every other business lender, The Wall Street Journal (subscription may be required) reports that franchise lenders are focusing more closely on cash flow projections, the borrower's equity contribution, secondary collateral and relationships.

The SBA has historically supported franchise financing with 10% of its loans going to franchisees. However, there are some signs that SBA lenders are pulling back on lending activities in general.

About 300 of some 4,000 bank participants around the country have reduced their SBA lending activity according to The Wall Street Journal. A handful of business journals have also reported that bank executives met with SBA and Treasury Department officials at the White House on March 5th to discuss small businesses' credit needs.

The meeting took place as lending through the SBA's programs continued to decline. Through March 7, the number of business loans made through the SBA's 7(a) program so far this fiscal year had fallen by more than 15 percent, compared with the same period a year earlier. The dollar value of these loans had declined by more than 7 percent.

No word on the outcome of this meeting other than something to the effect of "we're looking at it".

Want to know if the SBA will consider providing a guarantee in support of your franchise loan request? Check out The Franchise Registry for the SBA's list of approved franchise concepts. Being on this list doesn't guarantee a loan approval. It just means that your selected franchise concept has been vetted and approved by the SBA.

Need help finding the right SBA lender for your franchise acquisition? Read "Matchmaking for Business Loans" and give me a call!

Tags : franchise finance , franchise loan , SBA Franchise Registry , SBA loan , Wall Street Journal

SBA Patriot Express Tops $100 Million in Loans

In the eight months since its launch, the U.S. Small Business Administration’s Patriot Express Loan Initiative has produced 1,007 SBA guaranteed loans amounting to more than $100 million, with an average loan amount of nearly $101,000 according to the SBA.

Patriot Express loans have been approved in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and Guam and currently range from $5 thousand to $375 thousand in individual loan amounts. After loan applications are approved by the bank, they are submitted to SBA for approval. Most applications are approved by SBA within 24 hours.

Patriot Express is a streamlined loan product based on the agency’s highly successful SBA Express Program, but with enhanced guaranty and interest rate characteristics.

Loans are available up to $500 thousand and qualify for SBA’s maximum guaranty of up to 85 percent for loans of $150 thousand or less and up to 75 percent for loans over $150 thousand up to $500 thousand. For loans above $350 thousand, lenders are required to secure all available collateral to back the loan and may obtain collateral for smaller loans depending upon individual bank requirements.

Patriot Express is available to military community members including veterans, service-disabled veterans, service members leaving active duty, Reservists and National Guard members, current spouses of any of the above, spouses of active duty members, and the widowed spouse of a service member who died during service, or of a service-connected disability.

Need help finding the right Patriot Express lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Patriot Express , military veteran , SBA , 7(a) loan

Servis1st Asks "Who's Your Daddy?"

A lot of bankers talk about building strong relationships with their clients. Not many bankers actually do it.

Tom Broughton, President and Founder of Servis1st, is the focus of a Fortune Small Business article describing his relationship centric focus in founding his de novo bank in Alabama back in late 2005. The target market for the bank is small business.

Broughton's philosophy is that by really getting to know his customers and their small businesses, Servis1st is able to approve some business loans from which other banks might shy away.

Loan applications? He don't need no stinking applications.

But he'll look very carefully at your story, your financials and your collateral. In fact, he's also likely to want to know about "your character, your daddy's character, your granddaddy's character, your track record in business, your wife's spending habits, your ex-wife's spending habits, and whether you go to church on Sunday."

Better be prepared when you ask Tom Broughton for a loan.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Servis1st , Fortune Small Business , business loans , small business

HBLA – Five Tips for a Recession

The accounting firm of HBLA sent me a checklist for things companies should prepare for given the increasing likelihood of a recession in 2008. More than a handful of these tips related to managing cash flow and the working capital position of a business - not unlike those I posted here.

But given the continuous darkening of clouds on the horizon, a few of those are worth repeating below:

• Review the operating and cash flow budgets for a variety of scenarios (best case, likely, worst case) and develop plans for each.
• Identify your company’s KPIs - key performance indicators - such as days sales outstanding and days inventory outstanding. Both could impact company liquidity and, in turn, impact borrowing levels and costs of financing. Make sure your business has timely and accurate financial reports on KPIs.
• Review credit and collections policies – your customers will get into financial trouble during a recession. Bet on it. Don’t let it become your problem as well!
• Review capital expenditure plans and evaluate the impact of alternative acquisition methods: purchase or lease with due consideration to impact on operating results, cash flow and financial ratios.
• Communicate with your lender and, if necessary and possible, negotiate for increases in your line of credit and more flexibility with your loan covenants.

Starting to see signs of cash flow challenges at your company? Read "Matchmaking for Business Loans" and give me a call!

Tags : HBLA , working capital , cash flow , days sales outstanding

Insurance that Makes You Money!

For most businesses, accounts receivable typically represent more than 40 percent of a company's assets.

Yet, most companies insure against every other unpredictable event that has a high potential for loss, but have no insurance against excessive credit write-offs.

Almost eighteen months ago, I found a statistic that stated that almost 25 percent of businesses were considered high or very high credit risks. If you couldn't collect on 25 percent of your revenue, what would happen to your business?

So what's a business to do to protect its cash flow from being decimated by rising bad debt?

Credit insurance can protect you from your customer's inability to pay you due to insolvency or protracted default. It does not protect a business from trade disputes such as faulty goods or missed deadlines nor is it designed to protect against normal bad debt losses.

How can credit insurance impact the ability of a business to obtain financing?

For those businesses that use their accounts receivable as collateral for their lender, credit insurance enhances and secures the value of the receivables to the bank making it easier to secure the best financing terms.

Credit insurance can also enable a business to offer higher credit limits and/or better terms of payment to new and existing customers both domestically and overseas. The bank is going to like hearing that you're generating more revenue without taking on excessive risk.

Credit insurance policies covered over $400 billion of B-2-B sales in the United States this past year. Its availability to help your specific situation depends upon factors including the credit quality of your customers, the experience of the seller, terms of the sale, the diversification in your customer lists and the types of product sold.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : credit insurance , accounts receivable , cash flow , financing